Peggy Sherry, the chief financial officer at the Department of Homeland Security, and Ed Johnson, the CFO at FEMA, are this week’s guests on Agency of the Month.

The Homeland Security Department knew the good budget times wouldn’t last. The agency received a 7 percent-to-8 percent year-over-year increase since it came existence in 2003.

Peggy Sherry, the DHS CFO, said the agency started planning for the change in spending well before the actual cuts came.

“One of the things we’ve done is to do very strong base budget reviews in each of the components,” Sherry said Tuesday, during an exclusive interview on In Depth with Francis Rose as part of Federal News Radio’s Agency of the Month series. “During a time when you have 7-to-8 percent increases in your overall timeline, sometimes it’s really difficult to do those base budget reviews because you really are being more responsive [to your immediate needs]. But what we have done over the last couple of years is really to have each of the components to go in and to really take a look at what is it they are spending their money on.”

Sherry said each of the agencies mapped those programs against the DHS strategy missions and decided which projects are among their highest priorities and how they are performing against their metrics.

She credited Secretary Janet Napolitano’s 43 efficiency initiatives in getting DHS to take on a new discipline.

“You really do question when you go spend something and initiate a new project, is this really the best way you could do it? Is this the most effective, the most efficient way?” Sherry said.

Trickle down theory

Ed Johnson, FEMA’s CFO, said this type of approach has filtered down to the components.

“We have something called program budget reviews. These are not just high level discussions,” he said. “Every program comes in front of the leadership, the deputy administrator and the chief of staff, and talks about every contract they have in place, how their discretionary money is being used, what are their investments in IT. It’s all put on table to ensure priorities.”

Johnson said FEMA has reduced non-disaster response travel by 40 percent over the last year already based on the efficiency reviews, reduced its real estate footprint and saved $8 million to $10 million.

“There are very few stones that are unturned in terms of taking from the department down and reporting up to the department on those efficiencies,” he said.

Sherry and Johnson said the focus on performance metrics and program accountability is making the expected budget crunch easier to deal with.

Sherry said DHS reviews programs to ensure they are meeting their mission goals on a quarterly basis.

The reviews include the deputy secretary, the performance improvement officer and every CXO and program office that has a stake in the outcome of the program.

“We review performance metrics, ask if they are still relevant and whether the program is meeting the objectives laid out,” she said. “We really do have a cross component conversation about the program and its goals.”

FEMA takes the review sessions one level down. It created FEMAStat to evaluate program performance based on the objectives. It identifies barriers and helps the agency decide on what actions to take to reduce barriers. It also holds individuals accountable for implementation.

Johnson said FEMAStat challenges assumptions and asks hard questions as part of the effort to better meet mission goals.

“We have one now we are planning for next year, which is disaster estimating. We have a lot of tools within FEMA and across government that we are leveraging to determine how should we estimate the potential costs and actual costs of disasters,” he said. “We see some opportunities to enhance that without replicating tools that already are in existence. We will add that to our FEMAStat review for this upcoming year collaboratively not only inside FEMA, but looking outside of FEMA to gain that insight to build a better process of anticipated costs and build that into the budget.”

Financial books audited

DHS and FEMA are able to take advantage of the performance metrics and find efficiencies because for the first time ever, the agency received a qualified financial audit opinion.

Sherry said DHS has fixed 33 weaknesses, including 18 of which were consider material weaknesses, in their financial systems. From 2004 to 2010, those weaknesses kept DHS from getting a qualified audit opinion. Last year was the first time the agency received an auditors review.

She said auditing its property remains a weakness for DHS, especially for large organizations such as the Coast Guard and Customs and Border Protection.

As DHS closes its books for fiscal 2012, Sherry is hopeful that if they don’t get an unqualified opinion this year they will achieve it next year.

“Years ago, an audit was just the CFO’s problem and it was not considered the agency’s responsibility,” Johnson said. “Now it comes from the department and the component leadership that we have to be auditable. We have to make sure we are in lock step with the department. We have our own action plans and are being proactive, but now it’s a 12-month effort and the department sends out management action plans and we are tracking it.”

He said DHS headquarters holds a monthly meeting and faces independent assessments by external auditors to prepare for the year end effort.

It’s all about the systems

One of DHS’ biggest challenges around financial management has been whether to consolidate 13 key accounting systems. It has tried twice in the past and failed with Emerge and TASC.

Now Sherry said the focus is on modernizing systems and business processes.

“One of the things financial systems bring to you is automated internal controls and the ability to have sustainable success,” she said. “In an environment where you have decreasing top lines, it’s really important that you invest all of your dollars where you will get the best return on investment.”

Sherry said with all these disparate systems, DHS can’t get a complete view of what’s it’s spending and when.

“What DHS has been investing much of its time developing business intelligence tools. We are looking at how to do data standardization, standardization of business processes in such a way that I don’t need one accounting system in the department to get that one enterprise view,” she said. “We are also focusing on those systems that need to get modernized and we are working closely with the components to do that.”

FEMA was one of several components that needed to improve systems.

Johnson said FEMA upgraded its operating system to Linux and implemented an updated Oracle database.

“This gave us a stable system that we are no longer fearful of crashing at one time. Now we can work on the initiatives to build our environment better to deal with our financial management needs. That includes a gap analysis, which we are working with the department on. Everyone focuses on the tool first and thinks it’s the panacea. What we found out is there’s multiple dimensions to this and you have to look at your business processes and see if they are aligned properly, are they built the right way and will the system support it.”

Francis Rose is the host of In Depth, which airs weekdays from 4-7 p.m. on 1500 AM in the Washington, DC metro area and online everywhere. Francis has covered all three branches of the federal government as a broadcast journalist since 1998. He joined Federal News Radio in 2006, and launched In Depth in 2008 as a daily show focused on connecting federal executives to the information they need to do their jobs better.